The Secret Diamond Mine, Revisited

Edahn Golan

Once again, the U.S. rough diamond figures are out of whack. Of the $630.3 million worth of goods imported to the U.S., only $206.5 million remain there, less than a third of the goods – by value. The issue was discussed here a couple of times in the past, however last week the final figures for 2011 were published by the International Trade Commission (ITC) at the Department of Commerce, giving a whole new perspective to the oddity of the figures. The U.S., the country chairing the Kimberley Process this year, imported a little more than 0.7 million carats of rough diamonds in 2011 and exported nearly 1.1 million carats, nearly 0.4 million carats more than were imported.

We joked in the past about the secret diamond mine hiding in the U.S., but with 0.36 million carats in excess exports in 2011, the U.S. has exported of 7.4 million carats more than it imported since 2000.

Where have all these goods come from? That is a mystery.

The figures don’t agree with KP reports either. According to KP, the U.S. had net imports of 1.8 million carats in 2004-2010. According to the U.S. government, the country had net exports of 2 million carats.

The discrepancies are wide and deep. In value, KP and ITC are close enough to dismiss the differences (for example, the U.S. takes into account freight and insurance when looking at the value of an imported product, while most anywhere else the view is Free On Board – the value without added costs).

The same cannot be said for volume – unless there are special weight scales for exports that weigh differently than scales used for imports…

Globally, the average value of rough diamonds increased by about 24 percent in 2011. And though U.S. imports increase 20.3 percent compared to 2010, the volume of imports jumped 81.1 percent, bringing down the average imports by 33.6 percent, contrary to global trends.

Giving it the benefit of doubt, it can be argued that there is a shift in the way the U.S. industry operates, but there is no objective evidence to support this.

The problems continue. There are a number of international custom codes used in tracking imports and exports of any product imaginable. According to an international agreement born out of the Kimberley Process, all countries are to use the Harmonized Tariff Schedule (HTS) codes to track rough diamonds. The three relevant HTS codes (for gem quality, industrial quality and unsorted – meaning the two together) are actually printed on the KP certificates.

However, according to ITC, hardly any rough diamonds were imported into the U.S. in the past decade under the HTS codes. The figures quoted above were recorded under a different code.

U.S. trade is out of sync with global trade and not just by value. Analyst Chaim Even-Zohar said the most obvious explanation for the volumes of rough trade to and from the U.S is money laundering.

The problem is that the U.S. miserably fails in its minimum KPCS (Kimberley Process Certification System) requirements and the money launderers of the world consider the U.S. an easy place to launder and secure ‘respectable’ [KP] certificates,” he said two years ago. That has not changed.

As we seek greater transparency, better oversight and a cleaner public image, it is time to take a closer look at the way U.S. rough diamond trade is tracked, reported and examined. It is high time for a change, and the sooner done the better.